A recent North Dakota Supreme Court decision demonstrates the importance of written agreements, even if it involves family. Knorr v. Norberg, 844 N.W.2d 919 (ND Sup. Ct. 2014) (“Knorr”). The Knorr case plays out essentially a worst-case scenario of divorce impacting a family.
The Knorrs fell on hard times after the real estate market crashed. To avoid foreclosure, they had their two daughters (who were both married) each buy one of their houses in Arizona and North Dakota, then lease the houses back with an option to buy in favor of the Knorrs. This would enable the Knorrs to continue staying in the properties and buy them back when their fortunes changed.
The daughter who bought the North Dakota house, which the Knorrs used as their primary residence, later got divorced. Unfortunately, nobody could find the signed lease agreement with the purported option. To make matters worse, the daughter's ex-husband denied that an option was ever part of the deal and refused to allow the Knorrs to buy the property back on the agreed terms.
The daughter's ex-husband argued that the “statute of frauds” precluded any argument by the Knorrs that the parties had an enforceable oral agreement. The statute of frauds (N.D.C.C. 9-06-04(3)) provides, among other things, that certain contracts including an agreement for the sale of real property, are invalid unless they are in writing and signed by the parties.
The Knorrs argued that partial performance removed the alleged agreement from the statute of frauds citing Richert v. Dakota Sanitation Plus, Inc., 812 N.W.2d 413 (ND Sup. Ct. 2012). Courts carve out this exception in circumstances where, despite the absence of a written agreement, both parties' conduct unmistakably proves the terms of their oral agreement.
The District Court had listed factors that it believed amounted to partial performance including: (i) that the Knorrs built the home specifically to accommodate Mrs. Knorr's Parkinson's disease; (ii) the Knorrs continued to live in the home; (iii) the daughter and her husband never had the keys to the home, etc.
The Supreme Court noted that those factors could not be the basis for finding the partial performance exception to the statute of frauds because the purported option right was not the only possible explanation for each finding. Since the circumstances cited by the District Court did not “unmistakably point to the existence of the claimed agreement,” and since the court was unable to ascertain the specific terms of the supposed agreement, the Supreme Court reversed and remanded the case for further findings regarding the equitable claims that were also asserted by the Knorrs.
In short, the agreement the Knorrs had with their daughter was deemed invalid in the absence of a written document so the daughter's divorce may end up putting the Knorrs out of their home. So to those of you that prefer to do things on a handshake, get it in writing.